Is Blockchain Ready for Mass Adoption?

The hype around blockchain seems to persist! Every day we hear of more and more startups building on the distributed ledger technology and these same startups are sometimes raising insane amounts of investments.

But as an investor, or even a founder that wants to build on the technology you might wonder: have blockchain platforms so far delivered on their promises?

Probably not yet, and what we have seen in terms of implementations is still far from living up to the initial vision of a fully democratic process that enables real-time zero-cost peer-to-peer business transactions.

Limitations of current platforms

Blockchain’s current implementations don’t scale, it is as simple as that!

From the 3 transactions per second on the bitcoin network to the 15–20 transactions per second on Ethereum we don’t really have a foundation that will drive mass adoption.

Yes, of course, you can run it as a private permissioned network to avoid these issues… but then aren’t we back to a centralized model? This is not what blockchain was meant for, or was it?

Similarly, people are working on workaround solutions, like off-chain solutions, lightning networks to improve scalability… But at what cost? Why make something that still needs to mature even more complicated.

Limitations can be found in many places. Consider the reward mechanism built around proof-of-work, i.e. the mining principle. This is a huge waste of resources, lacks efficiency, slows down the network and is an environmental disaster to a point where certain states decided to charge additional taxes to miners. This mechanism has other negative side effects, as for instance the mining process itself being controlled by a handful of countries.

These limitations also mean that the cost of transactions can quickly increase. Point in case, earlier this year, when the kryptokitties application had 39.000 players joining the network over a period of 9 days, it almost put the Ethereum network to a halt. The kryptokitties transactions consumed more than 25% percent of the overall transaction capacity of the Ethereum network, with the cost of transactions skyrocketing… Again, not good enough for mass adoption.

Then there are usability shortcomings, which make me something wonder whether the developers of this technology ever thought about usability. Do you really want to remember the 256-bit number for addressing?

Remember what made the success of applications like Skype, Facebook, and others (besides the fact that they are free)? It is that we communicate with them using human-readable easy to remember names … not a 256-bit number for public/private keys. Today every time you do a transaction you are probably worried that one of the characters in the key is wrong and that your money gets lost in the “Ether”…

Not enough with that, today’s infrastructures are lacking some very basic functions, like lost account recovery. Today you lose your account, you lose your money.

These are all shortcomings that mean we should quickly move to the next generation of blockchain platforms if we want to see mass adoption.

Learning from 1.0 Platforms

Well, despite the shortcoming of the current technology it is still important to note that at each step, at each evolution, we have progressed and validated some of the theoretical assumptions made with blockchain. With Bitcoin, with the first generation of blockchain we learned two things:

First of all, we have a technology that is extremely secure. The bitcoin network has never been hacked and the security has never been compromised. The issues we have seen in the past with the hacking of exchanges like Mt Gox, cannot be blamed on the blockchain or bitcoin, it happened at a higher layer.

Secondly, the wide adoption of the technology and the cryptocurrency worldwide confirms that the world is ripe for disruption. Consumers worldwide have lost faith in banks and institutions and are ready to move to digital platforms.

Learning from 2.0 Platforms

As the technology has evolved, there are few more things we learned. One is that the technology has the potential to transform most industries. Use-cases have been piloted in most industries, from the banking sector, to supply chains, loyalty programs, real-estate or government sectors. Blockchain as a technology can help with savings, removing a man in the middle in many cases, helping to redefine value chains in others. But due to the inherent scaling issues, many of the projects are only built on privately commissioned blockchains, which often is synonymous with centralized control.

One of the great advancements on the technology side has been the introduction of smart contracts. From a business perspective, this was a great innovation introduced by the Ethereum blockchain, which allows the execution of code when certain conditions are met. This innovation enables automation in many industrial and business processes.

The other great innovation was the definition of standards for the tokenization of assets. Again with Ethereum, the introduction of the ERC20 token provided the means and guidelines to tokenize assets. Which means that with blockchain now, most physical assets can be turned into a digital counterpart on the blockchain.

This has also lead to a new mechanism of fundraising which is the Initial Coin Offering (ICO) mechanism. ICO’s provide nowadays one of the most popular (if not the most popular) way of raising funds. According to coindesk, during the first 3 months of 2018 more than 6.3 Billion USD have been raised from more than 300 ICOs. The largest being the Telegram ICO which raised by itself a record-breaking 1.7 Billion USD through its token sale.

Despite all these investments, the question about scalability if building on platforms like Ethereum or Hyperledger still remains…

Leading the way toward mass adoption.

Many startups believe that the shortcomings are such that a new infrastructure is needed, and dozens of startups are trying to come with their own platform. NEO, Cardano, EOS… are among the many new generations of blockchains you can see.

They try to address some of the following issues:

• Increased scalability by using simplified consensus mechanism and removing the wasteful mining process.
• Making sure that transaction can be processed in parallel to avoid bottlenecks and secure you can reach tens of thousands of transactions per seconds
• Truly attempting to make transactions free.
• Increasing usability through a human-readable addressing mechanism and providing simple functions like lost account recovery or allowing to block certain transactions.

Now building a new infrastructure is one thing, but the key is really to secure the adoption of that new platform. The platform will not provide much value if we don’t have the developer community developing distributed Apps (DAPPs) on that platform.

For that, you need tools, marketing, and support. This is one of the things that Ethereum and its largest proponent Consensys did very well. It is today widely adopted in private commissioned networks.

But I believe that change is coming, and EOS, could very well be the startup driving that change. The interesting part here beside fixing the blockchain limitations mentioned earlier, EOS has a clear plan on how to drive adoption. Having raised a massive amount of investments over the last year, they have decided to invest a large amount of money not in the platform, but in the development of DAPPs, by investing in other startups. With EOS a 1BUSD fund has been put in place which could lead to a rapid development of DAPPS on the EOS platform. This might very well become the first platform that is ready for mass adoption.

What does that mean for you as a startup or a company?

If you are a startup founder and plan to take over the world, you are probably wondering whether you should build your own blockchain or what technology platform to build on. Today Ethereum is pretty much Established as the de-facto standard for ICOs, and that is probably something you need to look into if you want to go down the ICO path.

Building your own blockchain is what might be the most rewarding if you can get the community to build on top of that, but that is also extremely difficult. It is probably best to look raising money with Ethereum and then see how you can migrate or build on a 3rd generation blockchain platform. EOS is for me one of the strong candidates, not because the technology is mature or far better than any of the other 3rd generation blockchain platforms, but simply because they have clearly outlined how they will build a strong community and raised enough money to execute on that promise.

As a few final words, and a disclaimer, this is not intended as a financial advice of any sort, but is rather a personal reflection on what is going on in the blockchain world.

I am sure some of this can be challenged and part of it is probably incomplete, and this is why I would like your feedback and thoughts on this! How do you see blockchain evolve? How could quickly do you believe we will get mass adoption of the technology?